For most new parents, caring for their newborn infant (and all the baggage that comes with that) is already enough of a burden without thinking of the worst coming to fruition. However, it often turns out that preparing for the unexpected can lead to less stress in the long run if you know that your child will be taken care of no matter what happens. Estate planning, the process of preparing for the transfer of wealth upon death, is essential not only to children who want to prepare their elderly parents, but for young couples with a child on the way as well.
Below are five estate planning tips that any new parents can use to secure their family’s financial security and be a step ahead of other families in case of an emergency:
Deciding On A Guardian and Trustee.
A guardian is a “substitute parent”, or an individual responsible for caring for a child should the worse ever come to fruition and they are left without parents. If both parents pass, he/she decides on where the child goes to school, how the child will be financially supported, and other crucial details. An essential step is to have a long conversation with your spouse about who is best to fulfill the role of a guardian; it is equally as important to talk with the person whom you have chosen: remember that this is a huge responsibility for a person and they must be ready to take on such a task. Another thing to remember is that a probate court decides if a chosen guardian is a good choice, so always keep in mind that to make the process go as smoothly for your child as possible, think long and hard about who is the most capable of properly caring for your child in your absence. To that end, be aware that the courts can overrule your designated guardian if they deem them to not be fit for the role.
Next up is the child’s trustee. A trustee is the financially empowered individual in your child’s life. Their role is to act as a treasurer; they perform tasks such as paying bills for the child, investing left-over money, taking care of income tax returns, and can possibly distribute remaining family funds to your child at a later date.
Prepare Post-Mortem Documents
It is a fact that the majority of all American adults don’t have a will; a survey done by AARP has found that around 60% of this demographic have no will or living trust at all. For many, stepping into parenthood is their first opportunity to create one. Not doing so means subjecting your assets to your state’s laws on inheritance, all of which are different and some that may not be consistent with your intentions. Often it means splitting your money between your spouse and children – many want to completely transfer their assets to their spouse so make sure to indicate your choice that in your will. Furthermore, a nuance that you may have to consider is that minor property, so keep that in mind when making decisions about transferring your assets. Finally, establishing a separate trust for your children can be a good idea. However, making “testamentary trust” in your last will and testament is simpler and can be effective if the proper funds are allocated to it.
Life Insurance.
When most people have their first child, they do not have significant capital saved up. Because of this, life insurance can be a life-saver for your children in the tragedy of a young parental death. A common “rule-of-thumb” life insurance policy is 20x your income, which is normally sufficient to cover almost all situations. Of course, this 20x rule will not work for everyone. You should think about how much money your family might need instead of how much you think you would otherwise earn during your lifetime ( “needs-based”, not “income replacement”).
Creating A Living Trust.
Aside from the benefit of avoiding the lengthy process of going through probate, and thus, having to incur sizable lawyer fees, a living trust offers one key benefit that failing to have one in your estate plan would likely fail to provide: clarity and certainty regarding your assets. With a living trust, you get to decide ahead of time who the assets are left to, who is responsible for distributing the assets to the beneficiaries, what the money will be used for, and at what age they will inherit the money.
Beneficiary Designations.
For many financial or insurance accounts, such as checking, savings, or life insurance accounts, you can name a beneficiary in the case of your death. Remember though, that these often take precedence over your will; the assets will be transferred to whoever is listed on it even if your will lists a different name. Make sure to name beneficiaries and keep them updated because forgetting to do so will likely instigate loads of family drama and headaches.
While there is little doubt that new parents already have a lot on their plate, the fact of the matter remains that arrival to parenthood is one of the best times to consider drafting your estate plan. It is always worth thinking about your child, and specifically what will happen to your child in the tragic event that one or both of their parents pass away. If you or a loved one have recently stepped into parenthood and are looking to draft an estate plan, consult with a top-rated estate planning attorney in New York who can help make sure that your assets will seamlessly transfer after your death and that your children are left taken care of.